1Building: Knowledge, Security, Confidence

Charge It RightFDIC Money Smart for Young Adults

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What is the first thing you think of when you see the words…

CREDIT CARD

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Cash, Credit, or Don’t Buy?

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Corkboard ME…

Copy the address on the SMART board and post two things you know about credit cards…

Once the website opens, simply click on the screen to add a post-it. Then double click and type your response! It’s that simple!

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What is Credit?

• Opportunity to obtain money, goods or services without having cash in exchange for promise to pay in future.

Credit 101 Quiz

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Did you know…

• Average credit card debt: $15,279• Nearly two in five Americans (39 percent) carry credit card debt from month to month• 77 percent of the adult population of the U.S. has credit card• Most Americans have four or more credit cards• About 60% consumers pay off bill in full each month• The average outstanding credit card balance of college students reported in 2012 was

$755• 27 percent of all college students surveyed in spring 2012 had a credit card in their own

name• In 2012: Number of bankruptcy filings was 1,261,140 (down 14% from 2011)

Additional facts (Creditcard.com)

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Credit Card Characteristics

• Convenient form of borrowing• 1959: Bank of America introduced 1st

revolving credit card• Make unlimited number purchases up to pre-approved

amount• When pay, amount goes back up to limit

• Require a minimum payment each month• Percentage of balance

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Debit Card & Prepaid Card Characteristics

• Debit Card:– Introduced 1984– Tied to checking account– Immediately withdrawn

• Prepaid Card:– Put money on card– Pay as you go until 0 value– Reload card with more money

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Activity 2: Which Card is This?

Credit cards Debit cards PrePaid cards

Load card with money and pay as you go

Tied to checking account

Has a spending limit and can be paid back over time?

Credit Card

PrePaid Card

Debit Card

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Secured and Unsecured Cards

Secured Cards Unsecured CardsVS

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Student Credit Cards

• Low (or no) introductory interest rates• Average interest rate: 14.99%

• Cash back bonuses• Some offer no income

requirements and no co-signer needed

• Typically low credit limit• Often no annual fee

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Rewards Cards

• Are offered by hotels, airlines, and/or your credit card company directly

• Earn points for amounts charged on card toward free or discounted travel, hotel, or other goods and services

• Usually charge annual fee• May give cash rebates• Average Interest Rate: 13.11%

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Pre-Approved Card Offers

• Offers from creditors that you might be able to get advertised interest rate and limit based on viewing your credit report

• Actual terms depend on income, employment and credit history

• National Average Interest Rate: 14.2% (Dec.2013)

• Bad Credit Interest Rate: 23.64% (June, 2013)

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Pre-Approved Offers

• “Pre-approved” but must still qualify for card• Read agreement carefully• Shop around! Don’t always take first offer

• May be hidden costs such as transfer fees

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Before Applying…

• Decide what use for• Not free money

– Loan and must pay back with INTEREST

• Find out interest rates and credit limit• Opt out prescreened offers

– Call 888-5-OPTOUT– www.optoutprescreen.com

• Shred unwanted applications

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Where can you find credit card offers?

• Email• Direct mail• Online ads/pop-ups• Retail store check out

lines• Magazines

• Newspaper• Booths at sporting

events, theme parks• Booths or tents at

colleges• Malls

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How do credit card companies sell you to get their card?

• Low or 0% introductory rates• Cash back bonus• No annual fees• Personalized or stylized cards• Free products

– Hats, t-shirts, reduced air fare tickets

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Shopping for the Best Deal

Credit cards have different terms:

Annual percentage rate(APR)

Fees Grace period

Balance computat

ion method

Cash advance requirements and

fees

Balance transfer

requirements and

fees

Hand out Sample Credit Card Forms

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The Fair Credit & Charge Card Disclosure Act• Requires lenders to

disclose APR, cash advances, and annual fees

• Must include box describing key features and costs and disclose terms in writing

Schumer BoxMore Info…

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APR (Annual Percentage Rate)

• Cost of borrowing money• Low Introductory rates

• Teaser Rates• Must state how long introductory APR lasts

• APRs are fixed or variable• Charge different rates for different

types of transactions

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APR (Annual Percentage Rate) (cont’d.)

• Penalty APR

If you are late paying other loans (such as house, car, phone, APR rate will increase on cardpolicy, even if credit card payment was not late

Increase in APR if payment is made late or exceeds credit limitPenalty APRs are about 52% higher than regular APRs

• Universal Default

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Fees

• Annual fees• Late fees• Over-the-limit fees• Balance transfer fees• Cash advance fees

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Grace Period

• Specified number of days to pay your balance before credit card company starts charging interest and fees

Grace Period

Free 25 days

Costing you money!

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Balance Computation Method

• States how interest is determined

• Most common is average daily balance method

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Cash Advance

Ability to get cash from credit card

Usually fee for service

Example: “2%/$10” means 2% of the cash advance amount or $10, whichever is more

APRs on cash advances are typically much higher

No Grace Period – interest begins immediately!

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Balance Transfer

• Moving unpaid debt (amount of

money you owe) from one card to another

• Encouraged by some companies using low rates on transferred balances

• Be weary of transfer fees!

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Truth in Lending Disclosure

• Mandates disclosure of information about cost of credit• Finance charge• APR• Payments and

payment schedule• Protects against

unauthorized use• If lost or stolen, max.

amount liable $50

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Other Factors to Consider

• Customer service• Access to account Information• Bill Payment• Update personal information• Problem resolution

• Additional protection• Lose your job & unable to pay bills• Lose card• Identity is stolen

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Tips to Think About When Choosing a Card

• How and when you will use card• Start small• Understand terms before accept card• Beware of introductory rates• Beware of application fees• Understand fixed and variable rates

Credit Card Simulator

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Application Requirements

• Individual credit – based on assets, income, and credit history

• Joint credit – based on assets, income, and credit history of two people who apply

• Typically, you must be at least age 21 to apply

Credit Report – A record of how you paid your debts…

Credit Report – What is it?A record of how you paid your debts…

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Credit Report – What’s on it?A record of how you paid your debts…

• Identifying Information• Name, current and previous address, SS number, DOB,

current and past employers, spouse info• Credit Information

• Accounts with banks, retailers, credit card issuers, utility companies, mortgage, student loan,

• Date opened, Credit limit, Co-signers• Payment pattern over past two years

• Public Record Information• Bankruptcy, tax liens, monetary judgments

• Recent Inquiries• Name of those who obtained copies of your credit report

within past year

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Credit Reporting Agencies

• Fair Credit Reporting ActRequires each of 3 agencies to provide

FREE copy of report

• Equifax• Sample

• Experian• Sample

• TransUnionwww.annualcreditreport.com

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You may also get FREE copy if…

• Denied credit, insurance or employment

• Unemployed and plan to look for job within 60 days

• Receiving public assistance• Report inaccurate b/c of fraud or

identify theft

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Credit Score

• Determines credit risk• Determined by your

credit report• Two types–FICO (Fair Isaac Corp)

–VantageScore• Check your score

before applying

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FICO Score

• Scores range from 300 to 850• The higher your score, the

better

Great 760-850

Very Good 725-759

Good 660-724

Not Good 560-659

Bad 300-559

The national average FICO score was 646 as of July 2013

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VantageScore

• New as of March 2006• Used by all three reporting agencies• Should be the same score from each

agency• Scores range from 501 to 990• Number score goes with a letter grade

– Example: 901-990 = A, 501-600 = F

The national average VantageScore was 750 in 2012

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Denied Credit?

• Poor credit history• Not at current address or

job long enough• Income not high enough

60 Days to contact credit bureau to receive free copy of credit report!

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How long does information stay on my credit report?

• Suits, judgments, tax liens, arrest records, collection agencies– 7 years

• Bankruptcy – 10 years

• You have right to dispute any incorrect information with credit agency and/or company

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• Protect card and account numbers• Draw line through blank spaces on charge slips

• Tear up or shred receipts • Keep a record of account information• Carry only cards you think will use

• Avoid having more than two cards!

• Pay off balance monthly• Do not exceed credit limit

Using Your Credit Card Responsibly

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Need Help with Credit Card Problems?

• Pay off high interest rate loans first!• Pay using cash or check• Credit counselor• Enroll in DMP (debt mgt program)

– Regular, timely payments– 48 months or more

• Beware of Debt Consolidation traps

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Lost or Stolen Credit Card

• Lost or stolen – Notify credit card company immediately

• Do not give personal or account information over phone

• Suspect fraud – Notify credit card company immediately• Liable for at most $50 per card if notify

immediately• If contact before any unauthorized

charges made, liable $0

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Identify Theft

• Make charges to account without knowing• Take years to clear up• Be careful providing personal info

– on-line– over phone

• FTC ID Theft video

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Paying Your Bill: The Credit Limit

• Credit Limit: maximum amount creditor is lending you

• Charged over-the-limit fees• May reduce credit score

Credit Limit

$ Fees $

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Minimum Payment

Original Balance APR Monthly

Payment

Total Number

of Monthly Payments

TotalInterest

Paid

Total Years to Pay Off

Total of Payments

$2500 18%Minimum Payment

$38291 $8553.27 24.3 $11053.27

$2500 18% $50 94 $2155.55 7.8 $4655.55

$2500 18% $100 32 $656.80 2.7 $3156.80

Practical Money Skills

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Finance Charge Calculation

1. Divide Interest rate by 365/year.18/365 days = .000493151 (daily interest rate)

2. Take the daily interest rate and multiply it by the number of days between billing cycles.

.000493151 X 30 days = .014794521 (periodic interest rate)

3. Multiply balance by periodic rate

$200 X .014794521 = $2.96 finance charge

APR= 18%; 30 days; $200 balance

You need a current newer

calculator such as T1

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Try this…

• APR = 12%• Balance = $250• Finance Charge =

• APR = 18%• Balance = $500• Finance Charge =

• APR = 15%• Balance = $1500• Finance Charge =

• APR = 10%• Balance = $2800• Finance Charge =

$2.47

$23.01

$18.49

$7.40

30 Days

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Fair Debt Collection Practices Act

• Prohibits debt collectors from using abusive, unfair, or deceptive practices to collect

• Debt collector – Someone who regularly collects debts owed

• Collection agencies• Lawyers who collect debts on regular basis• Companies that buy delinquent debts and try to collect them

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• What types of debts are covered?– Personal– Family– Household debts (personal credit card account, auto loan, medical bill, and

mortgage)

• Can a debt collector contact me any time or any place? – No. – May not contact at inconvenient times or places,

• Before 8 am or after 9 pm, unless agree.• May not contact at work if they’re told (orally or in writing) that not allowed to get calls

there.

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Credit Card Statement

• Front – Shows detailed activity that happened for billing cycle

• Back – Describes terms, how interest is calculated, and contact information

Credit card statement video

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Fair Credit Billing ActErrors on Your Statement

• Addition to Truth in Lending Act• Requires prompt credit for payments and error

corrections • Dispute billing errors and withhold payment for

damaged goods

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To take advantage of the law's consumer protections, you must:

• Write creditor at address given for "billing inquiries,“ – Include name, address, account number and description of billing error

• Send letter to creditor within 60 days after first bill containing error was mailed

• Send letter by certified mail, return receipt requested, – Proof and include copies (not originals) of sales slips or other documents that support

position. – Keep a copy of dispute letter.

• Creditor must acknowledge complaint in writing within 30 days after receiving it, unless problem resolved.

• Must resolve dispute within two billing cycles (but not more than 90 days) after receiving letter.

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Credit Card Act of 2009

• Est. new rules and amend previous– Requires changes on disclosures– Limits on fees and rate increases– Requires consistency in payment

dates and times• EX: under 21 must demonstrate

able to make payment or have a co-signer

New Credit Card Laws

video

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Keep Good Records

• Receipts• Check for mistakes

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Corkboard ME…

Copy the address on the SMART board and post TWO things you LEARNED about credit cards…

(Once the website opens, simply click on the screen to add a post-it. Then double click and type your response! It’s that simple!)